IPO Size: Rs. 700 cr IPO (75% reserved for institutions)
- Rs. 200 cr fresh issue for capex (Rs.92 cr) and debt repayment (Rs. 60 cr)
- Rs. 500 cr offer for sale (OFS) by promoter (100% stake to drop to 68%)
Price band: Rs. 265-274 per share
Mcap: Rs. 2,205 cr, implying 32% dilution
IPO Date: Thu 16th Dec to Mon 20th Dec 2021, Listing Tue 28th Dec 2021
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Company manufactures niche generic active pharmaceutical ingredients (APIs) and is one of India’s largest exporters of chlorpheniramine maleate, ketamine hydrochloride, salbutamol sulphate, commanding 30-60% export volume market share. On FY21 and H1FY22 revenue of Rs. 385 cr and Rs. 225 cr respectively, 75% came through exports to 86 countries, half of which were from high-margin regulated markets.
- Despite no presence in specialty chemicals, it clocked very high margins of 35% at EBITDA level and 24% at net level for FY20, which increased to 46% and 32% respectively in FY21. RoE for FY20, FY21 and H1FY22 exceeded 40%.
- 65% capacity added in May 2021, increasing installed reactor capacity to 547 KL/day. Rs. 92 cr capex from IPO proceeds will further increase capacity substantially over the next few years, with incremental revenue potential of Rs. 250 cr, considering asset turnover of 3x.
- Inexpensive Valuation: Glenmark Life, with Rs. 2,000 cr revenue, 30% EBITDA, 20% PAT margin is ruling at FY22E PE multiple of 16x while Supriya is priced at a PE of less than 14.5x, despite higher EBITDA and net margins of 46% and 30% respectively. While Supriya’s revenue is lower, its 22% revenue CAGR between FY18-21 is greater than Glenmark’s 16%, besides superior RoE.
- Margins to be monitored: In H1FY22, company’s revenue share of regulated markets increased to 49% from 38% in FY21, but realisation declined vis-à-vis FY21. This along with input price inflation contracted EBITDA margin to 44% from 46%, and net margin to 29% from 32% respectively. Sustainability of high margins needs to be monitored, given net margin in FY19 was as low as 14%.
- Concentrated product portfolio, with top 3 and top 5 products accounting for 50% and 66% of revenue respectively, any import ban, like for chlorpheniramine maleate, used as an anti-histamine, during Mar-Dec 2020 in China, may impact financials adversely.
- Large Dilution: The IPO entails a large dilution of 32%, with promoters looking to shrink their 100% holding to 68%, mainly through participation in the OFS. If not for halving of the OFS size from Rs.1,000 cr during DRHP filing in Jul 2021, the dilution would have been much higher.